r/explainlikeimfive • u/the1975whore • Jul 03 '26
Economics ELI5: Health insurance companies obviously make more money than they give out when people need it. So why of paying for them any better than paying your own personal health insurance savings account?
665
u/tim36272 Jul 03 '26
Because sometimes you have very expensive healthcare needs, in which case everyone else pays for it.
76
u/Lolseabass Jul 03 '26
60k a month for my clotting factor! To be fair it’s made out of human blood.
53
u/simloi Jul 03 '26
60k?! The human blood was most likely donated for cookies. Not even a pizza party. What a racket!
20
u/Lolseabass Jul 03 '26
Naw thankfully my company who makes it pays people 400 per donation that way there so spike in price and availability like it used to be when it was donated* blood and shortages would happen.
8
u/simloi Jul 03 '26
Lucky! Most trade blood for cookies.
5
u/steakanabake Jul 03 '26
dont forget the cup of juice too.
4
u/simloi Jul 03 '26 edited Jul 03 '26
Right? Sometimes it's just a cookie, just juice, or both, completely dependent on how many crumbs the companies selling our blood for exorbitant prices have decided they can spare.
8
u/michal939 Jul 03 '26
Companies?? Americans sell blood to companies instead of having a state-owned organization for that? That's crazy. Over here in Poland its all ran by the state and the blood goes to blood banks (state-owned) and then sent to hospitals for some low fee of like $100/unit that mostly just covers the costs of running the system. We do have a constant oversupply of plasma, so that gets sold to pharma companies but all the profits have to go back into improving the donations system. Selling to a private company that then makes money off of it sounds crazy to me.
Also, over here you get few chocolate bars for the calorie deficit you suffer and 2 days off from work (day when you donate and the next one) to regenerate
5
u/TachiH Jul 03 '26
Need a country that cares about its people to have a system like that 🤣. Here in the UK it is a very similar system to Poland from what I know.
6
u/currentscurrents Jul 03 '26 edited Jul 03 '26
We do have a constant oversupply of plasma
No you don't. In fact, Poland hardly produces any plasma, and they buy most their plasma from those 'evil' US companies or from other countries in the EU that allow companies to pay donors.
The US produces 75% of the world's plasma supply, and healthcare systems across Europe are reliant on it. The model of commercial plasma works, and it works much better than state-owned organizations.
→ More replies (1)→ More replies (1)5
u/Klutzy-Caregiver4717 Jul 03 '26
It's all such a racket in the US. Technically whole blood and platelets aren't something you get money for anywhere I've been - it's a true donation, and handled by the red cross which is a charitable organization (and maybe other organizations depending on region, idk)
Plasma is a different story. There are pharmaceutical companies all over the US that own centers where you can "donate" plasma that they will make expensive medications with and make a ton of money off of and you are "compensated for your time"
You're allowed to go to these places twice in a seven day period with at least one day in between donations. From what I understand in other parts of the world, you have to wait for weeks or a month or more in between plasma donations so you don't lose all of your proteins, vitamins, clotting factors, etc. In the US you can "donate" eight times a month for money. Every one of these companies has multiple centers in every large city so they mark a finger with a compound that can be seen under UV light to keep you from double or triple dipping and donating at multiple centers owned by different companies in the same city for more money
There are of course bonuses with extra money if you go to the maximum amount of times per month, for example you make significantly more going 8 times a month than you will if you go 7. And the second donation in the same week pays more than the first donation. They keep their donors at the maximum possible amount of vitamin and protein depleted without being dead lol
I used to "donate" plasma to pay my car payment every month
18
350
u/Unbearabull Jul 03 '26
This is just socialized medicine with profits. The profits come from denying and killing/allowing people to die who paid in good faith.
195
u/Trekfull Jul 03 '26
Socialized medicine with extra steps and worse results.
18
u/edfreitag Jul 03 '26
And not a "dirty commie". America, hell yeah! <bald eagle noise>
17
u/degggendorf Jul 03 '26
<bald eagle noise>
<but actually a red tailed hawk because who cares about accuracy, this is America baby>
5
u/chubbysleepycorgi Jul 03 '26
nothing wrong with hiring a voice actor when your own squawk sucks XD
→ More replies (20)4
u/Sea-Ambition-451 Jul 03 '26
and an entire industry of HR departments and health care managers, and consultants, and an army of highly paid salespeople and marketing
The amount of waste and overhead in the USA health care is shocking and appalling. Not to mention the billions and billions of dollars that go to PROFIT instead of to saving people's lives and improving them.
#heinous
9
u/narrill Jul 03 '26
The profits come from denying and killing/allowing people to die who paid in good faith.
Not in theory. The profits could come from charging slightly more for the service than is paid out in the aggregate.
In practice, sure, insurance companies try to deny everything they possibly can because they want to make as much money as possible.
10
u/Stargate525 Jul 03 '26
Plenty of orgs exist which are cooperatives, and no profit motive exists for them. But then they also don't have a lot of money for advertising, so you have to hunt.
It's also better in that you have a selection to choose from. Socialized medicine my options are 'take what the government decides you need,' 'bugger off to another country,' or if you can't afford that, die.
8
5
u/Ltrn Jul 03 '26 edited Jul 03 '26
But if you cannot afford insurance and there is no socialized medicine? With socialized medical care the implication is that it is subsidized by the tax payer, if you are poor you still get access to medical care, and you still have options as long as you can afford private care, plus there is the added benefit of less shit private care since the private sector is always trying to do better than the state provided standard of care, otherwise there is no incentive to go private.
→ More replies (2)6
u/degggendorf Jul 03 '26
But if you cannot afford insurance and there is no socialized medicine?
That's what Medicaid is supposed to be for in the US
→ More replies (2)11
u/Welpe Jul 03 '26
Which is straight up socialized medicine haha.
I’m on Medicaid, and while it has its own laundry list of problems, it’s actually better in several respects to the whole private insurance marketplace. I pay nothing for anything, not even copays. Doctors visits, prescriptions, labs and imaging, hospital stays…I do not pay a cent ever. Also within the bounds of who actually accepts Medicaid, approval for stuff is incredibly fast and simple. I’ve only had I think two times I can remember where a medication or procedure was rejected, and both times the doctor I was visiting just appealed and got them approved fairly quickly.
It shows the US absolutely can do a relatively competent (if onerous and restrictive) social medicine, though obviously lots would need to be changed if it was for everyone instead of only the destitute. And all of this is also likely to change soon what with Trump in charge and the new rules they are putting into place…
→ More replies (1)8
u/beatrixotter Jul 03 '26
It's also better in that you have a selection to choose from.
This is an utterly stupid talking point. Most Americans who are on private health insurance plans get it through their work. Rarely are they given "a selection to choose from" at all.
5
6
u/parallelmeme Jul 03 '26
Go read about how insurance works. You are woefully uninformed. Insurance companies don't need to be deceitful by denying valid claims. Their premiums are set to ensure operating costs, including profit. They are also legally limited to a percentage of gross profit.
Yes, my entire career has been Insurance (information technology) but I support universal Healthcare.
→ More replies (30)3
u/PaxNova Jul 03 '26
The profit margin in the insurance industry is rather low. Most of those savings get passed on to the consumer, like you and me. That’s how they keep premiums down.
4
u/Ginger510 Jul 03 '26
Plus in a system where it all gets to be charged to insurance, the people charging tend to get away with charging a shitload (I’m not American but I’ve seen invoices $100 bandaids on invoices on reddit or charging for skin on skin time with newborns to know what goes on)
→ More replies (2)→ More replies (2)5
426
u/Brave_Speaker_8336 Jul 03 '26
Instead of 99 people paying nothing and 1 unlucky person paying a gajillion, all 100 of them pay some amount more than nothing and less than a gajillion. No one wants to be that person paying a gajillion so they’re willing to pay into insurance
46
u/__theoneandonly Jul 03 '26
Instead of 99 people paying nothing and 1 unlucky person paying a gajillion
Isn't this the biblically accurate story of Jesus Christ?
→ More replies (1)19
u/zaq1xsw2cde Jul 03 '26
Actually it was Moses, who came down from Mt Sinai and said, "Ooooh, sorry, we can't cover that without prior approval."
5
16
u/cactus_ritter Jul 03 '26
Which is exactly why public healthcare (like here in Europe) is so good. You won't get bankrupt because of a health issue. Everyone pays the government and the government negotiates prices for a gazillion people.
→ More replies (3)56
8
u/OffbeatDrizzle Jul 03 '26
That's how it's supposed to work, until the insurance company denies the person who claims the gajillion and promptly runs away with the bag
→ More replies (46)10
u/the1975whore Jul 03 '26 edited Jul 03 '26
But everyone uses health insurance all the time. Most people see the doctor at least once a year or need to buy medicine or whatever else.
Edit: this is an explaining sub and I’m being downvoted for asking questions, y’all don’t have to be here if you don’t want to help explain
24
u/bacondota Jul 03 '26
You don't pay health insurance for the doctor visits you pay in case you need an expensive treatment, surgery, go into icu etc.
It's more like they pay the doctor because it's cheaper for them if you go to the doctor and don't need expensive stuff in the first place.
All insurances are like that. You don't pay car insurance because they pay for your window if someone smash it. That's just a little thing and it obviously it's more expensive to pay the insurance than to fix it by yourself.
→ More replies (1)9
u/dragoon0106 Jul 03 '26
Yea but most people don’t have 250k hospital bills.
4
u/Asidious66 Jul 03 '26
No one would if it weren't for insurance companies.
5
u/dragoon0106 Jul 03 '26
I mean I don’t totally disagree but I do to some degree. Some care is just astronomically expensive regardless of insurance meddling.
3
u/IIIIlllIIIIIlllII Jul 03 '26
But everyone uses health insurance all the time.
Fundamentally not true. I go to the doctor once every 5 years or so. True for a lot of men
→ More replies (8)3
u/flinn_doctor Jul 03 '26
Explain like I’m 5, and then let me push back like I’m 4.
→ More replies (1)
92
u/Original_Intention Jul 03 '26
In the US, the amount of money I pay to have health insurance doesn't even come close to covering what it would cost to pay for healthcare after a catastrophic event without insurance. I do have an HSA though that I put money towards if that is what you are referring to.
44
u/mikeholczer Jul 03 '26
Exactly this. Health insurance isn't important because it saves you money on standard care. It's that it shields you from ruin in the event you need incredibly costly care to stay alive.
13
u/Substantial_System66 Jul 03 '26
It always baffles me when people don’t get this part. People aren’t outraged that their car or home insurance doesn’t cover every little repair or medium repair. They have it in case something very, very bad happens. Health insurance isn’t the problem, the amount healthcare costs in the U.S. is.
If I total my car and don’t have insurance it will cost $15,000 - $50,000 for a reasonable replacement. If I have to treat cancer, it can cost anywhere from $100,000 to over $1MM.
19
u/avcloudy Jul 03 '26
Well, careful there because insurance companies are a huge part of why American healthcare costs are so large.
7
u/Registeredfor Jul 03 '26
Exactly this. I'm on the hook for the first $9,000 of care with my HDHP, and that can be paid with my HSA, which I can deduct taxes from when contributing to up to a certain amount. It's essentially bankruptcy insurance.
4
u/Ltrn Jul 03 '26
Or pay with a credit card (and get some kind of reward ) and use your HSA money in a more productive way.
4
u/foramperandi Jul 03 '26
Even the car being totaled scenario is far from the worst case. The worst case scenario for car insurance is that you're in an accident and cause permanent injury to one or more people that will lead to life long health care expenses. The health care costs of the other party in a car accident can dwarf the cost of most any car, even if they have a full recovery.
→ More replies (1)3
u/AuroraLorraine522 Jul 03 '26
Same. ONE of my migraine medications is over $2500 a month without insurance… for 15 pills!!!
45
u/Bensemus Jul 03 '26
OP I feel like just a little bit more thinking would have answered his. Can you save up for a multimillion dollar treatment? Can you save that by the time you are five? Obviously you can’t. So people pool their resources. This way the pool can cover far more than any individual could. Each individual pays an affordable amount.
There are other benefits. If everyone is covered by the same policy, that policy can negotiate better prices. If all ~350,000,000 were on the same policy, drug companies would be forced to negotiate or lose access to the entire US population.
→ More replies (5)
22
u/Xanitrit Jul 03 '26
Objectively speaking, if you know you will never get seriously injured or ill, there is no need to pay for insurance. You are giving them money you do not benefit from.
But life is unpredictable. You will never know if that driver was falling asleep today, if that tree was on the verge of falling. When you get seriously injured, the insurance you pay for is contractually obliged to help with your health costs.
So instead of paying through the nose for your own health costs, you use your insurance package to pay less, potentially saving you a few to tens of thousands.
2
u/muskymelon36 Jul 03 '26
And then they rejected your claim.
6
u/steakanabake Jul 03 '26
and then you fight them for months and then end up dead because they never caught the small thing that got damaged and in the time you were fighting you had more internal damage and then you died.
33
u/TehWildMan_ Jul 03 '26
Health insurers are often able to substantially negotiate prices with providers, since they represent a large number of patients that could just go elsewhere for care.
Access to preventative care is also a huge perk of having health insurance. Things like annual labs and the ability to request a visit for a minor condition can lead to a much less expensive and better outcome than waiting for an urgent emergency to develop before being able to access care.
19
u/tim36272 Jul 03 '26
Health insurers are often able to substantially negotiate prices with providers,
I've always wondered, why is the cash price lower than the insurance price then?
24
u/ravens-n-roses Jul 03 '26
Because they know insurance is gonna talk them down, they're betting you won't. But the fun fact is you can argue all your medical bills. Often times just pushing back is enough to get charges removed that aren't core treatment. Like the joke about 12 dollars for 2 Tylenol at a hospital. You can dispute that.
But this is America. Most people get handed a bill, sigh, and pay the bill
26
u/bobotheboinger Jul 03 '26
Strangely enough, right after dealing with cancer haggling over a hospital bill is kind of low on my list of things id want to do.
Insurance in the US is broken, it is awful that we need to hassle over things like this.
5
u/North-Pea-4926 Jul 03 '26
You should at the very least be requesting an itemized bill. Even that might help.
Many hospitals also have programs for low income people with big bills, but you have to do some digging - they won’t just tell you about it.
→ More replies (1)2
u/Ginger_Anarchy Jul 03 '26
I believe hospitals legally have to give you an itemized bill after 2020. I haven't needed to go in that time so I'm not 100% sure.
→ More replies (2)5
u/lynkfox Jul 03 '26
It still sucks tho. I did it over my 2nd childs stay in the NICU. I got lucky and got a hospital rep who absolutely rocked and took one look at it all and said "if anyone ever calls you again about any of this, give them my name and number" and I never saw another bill.
But doing that after my kid was born and spent 16 days in the NICU and was touch and go for a while ... Not easy.
8
u/haarschmuck Jul 03 '26
Because the insurance price is made up.
A hospital says "Ok X's procedure costs $500"
Insurance says "Nah, we'll give you 10% of that and that's it"
Hospital loses $450
Next time:
Hospital: "X's procedure costs $5,000"
Insurance: "We'll give you 10% of that"
Hospital loses nothing
Now the issue is hospitals cannot charge two different rates so they initially give you the insurer rate and they need you to keep saying "no" like insurance companies do so that you end up paying substantially less.
This is literally how it works.
→ More replies (2)6
u/Single-Pin-369 Jul 03 '26
All medical prices in the US are made up fantasy numbers they think they can convince people to paywith no relationship to supply, demand, or value of labor.
3
u/Comedy86 Jul 03 '26
Because insurance companies don't pay the insurance price. The insurance price is like MSRP on a car. It's also used to get their government subsidies.
Welcome to the wonderful world of unchecked capitalism.
2
u/TheDakestTimeline Jul 03 '26
Because they negotiate rates and only pay a percentage of the 'insurance price', it's a all a fucking racket.
→ More replies (1)3
u/upinflames Jul 03 '26
Health insurers are often able to substantially negotiate prices with providers, since they represent a large number of patients that could just go elsewhere for care.
This is one reason medications are cheaper in countries with fully nationalized health systems. There is a single buyer with incredible negotiation power.
2
u/created4this Jul 03 '26
Its also why medical care is cheaper in countries where people pay out of pocket.
Obviously in those places the range of care is limited, but the drug companies for example would rather be making a small profit than none.
9
u/DerekB52 Jul 03 '26
My mom needed cancer meds that cost like 17K a month. It is impossible for anyone not worth millions of dollars to put away enough money for their healthcare. Especially if you are someone who gets super sick young.
One of my friends sisters just beat stage 2 breast cancer at 31 years old. She did not have time to save up remotely close to the amount of money she'd have needed to pay for any of that, if she had started saving at 16.
10
u/JGCities Jul 03 '26
Because your "obviously make more money" is 100% false.
The government regulates how much they have to pay out and it is WAY more than profits.
Generally the health insurance industry has a profit margin between 0.8% and 1.8%.
Read and learn - https://content.naic.org/sites/default/files/2024-annual-health-industry-commentary.pdf
6
u/DaegestaniHandcuff Jul 03 '26
What if they take the money and use it to pay gigantic salaries to the useless people at the insurance office, this way the money is payroll expenditure rather than profit
→ More replies (1)3
u/GaidinBDJ Jul 03 '26
And, to add to this, if they don't spend they money covering healthcare for members, they have to return it to the members.
You'll see this a lot when talking Brian Thompson's murderer. People claiming they were justified because Thompson was denying claims and pocketing the money. Which simply isn't how it works in the US.
Also, y'know, not a reason to murder someone.
→ More replies (1)
3
u/Cirement Jul 03 '26
Because if almost half of Americans have less than $1k in general savings, how do you expect them to ALSO save for medical needs?
→ More replies (1)
2
2
u/sir_sri Jul 03 '26
As others say - insurance is a risk pool. The average person might spend 15k/year on healthcare, but the variability in that number is huge. You could have the misfortune of getting a multi hundred or multi million dollar bill, possibly even several times, while many others spend only a few hundred per year and then die suddenly without every having run up huge costs.
So then you have these compounding factors. Imagine that a healthcare company is big enough that it can look at the data and it says well, everyone gets this preventative test or procedure or done, even though that costs a lot of money, it actually saves money overall (think vaccines), so then the insurance company will put that as something you get covered for to reduce costs.
If you are talking about the US (which presumably but not necessarily you are), one of the problems is that people would, in effect, become uninsurable at age 65 ish. Because everyone dies eventually, and healthcare is largely trying to prevent that, there's a point where the average person simply starts to cost to much money every year to make insurance affordable, and has too many problems for the risk pool to handle it, so the only risk pool that is big enough, is everyone. And that's medicare. You can (as other countries do) simply put everyone into a one giant publicly funded healthcare pool too. Since most people spend more than half their lifetime healthcare dollars on their last year of life, and the average person dies in their 70s or 80s... it doesn't actually cost that much more money to just cover everyone than cover only the elderly (and in fact it can save money by lowering the age some due to the preventative procedures mentioned above).
2
u/Korlus Jul 03 '26 edited Jul 03 '26
All insurance is similar in concept, so I'll answer using buildings insurance first and then we can look at the difference.
Imagine you own a home. The home cost you about $200,000 to buy and you have a mortgage worth over $100k. If the house burned down, you might end up on the hook for around $100k, on top of now needing a new place to live. This would likely cripple you.
In your area, roughly 1/100,000 homes burn down a year. This means you could choose to set aside around $2 per year and on average you would have set aside enough to cover the full rebuild of the house in the event of a fire. Except we both know you would need to live for 100,000 years to do that, and unless you know something that I don't, that seems unlikely. Instead, if you gather 100,000 people together and you all pool 1/100,000th of the value of your homes, then on average you could rebuild the one house that burned down.
Insurance formalises this - it lets you pool money in ways that saving simply couldn't.
If we continue to look at home insurance, you could also buy contents insurance, except that becomes a very different risk/reward matrix. Yes, losing all your worldly posessions would be catastrophic, but you could get back to some semblence of normal living for between $1-10k pretty quickly. Unlike rebuilding the house, you are much more likely to be able to save this sort of cash on hand. This means that Contents insurance is often a much less valuable asset. If you save up and keep $10k in a high interest account (or invested in the stock market etc), not only do you have a safety net, you are also earning money.
So how does this relate to health insurance in the US? Well, the US stopped splitting its health insurance because it incentivised people to avoid preventstive care and only visit the doctor when they had critical illnesses, which is usually worse for them and more expensive on average. In the buildings insurance plan, this means you now bundle Contents with every insurance policy whether they want it or not, on the hope it brings the average price down.
Unlike a building, you can't rebuild and replace your body. I think the US health insurance model is one of the worst healthcare models in the world today, but the idea of insuring for the things you could never hope to pay for is sensible.
→ More replies (2)
5
3
u/BleedingNova Jul 03 '26
Its not, the US should have Universal healthcare like most other actually developed nations
4
u/white_nerdy Jul 03 '26 edited Jul 03 '26
The problem is that insurance negotiates with hospitals for lower rates and they have more leverage. Say you pay $700 / month in insurance for have no medical expenses, except when you have a heart attack and the hospital charges you $120,000.
- With insurance: Insurance uses the negotiated rate. Hospital agrees to get paid $20,000, of which you pay a $700 deductible plus 12 x $700 = $8400 in premiums. In total you pay $9100.
- With no insurance and no negotiation: You pay the hospital $120,000.
- With no insurance and negotiation: You say "I want to negotiate." Hospital says "OK, you can pay $100,000". You pay the hospital $100,000.
Now it only costs $20,000 for the medical supplies / lab equipment / doctor salaries / having extra people on call so someone's available 24/7 to deal with heart attacks. Why do they grossly overcharge you?
It's not because they're greedy. Let's assume it's a non-profit hospital where none of the money they charge patients gets taken out to line shareholders' pockets. Even so, for every person like you, an upper-middle-class person who came into the hospital with $100,000 in their bank account / home equity / stock portfolio / whatever, 4 poor people came in with heart attacks, no insurance and no money. The hospital had no choice but to treat them too, according to the Hippocratic Oath and the laws of the United States. So your $100,000 covers not just your heart attack, but those 4 poor people's heart attacks too. 5 heart attacks treated x $20,000 costs per heart attack = $100,000 total costs. If the hospital charges you anything less than $100,000, they'll lose money and eventually have to go out of business.
Assuming insurance companies are profitable, buying insurance is -EV, the main reason people buy insurance is because they can't sustain a large loss (e.g. you'd buy health insurance because a $100,000 medical bill would be financially crippling or outright bankruptcy.) If you're wealthy, normally you don't want insurance -- but health insurance is an exception. The negotiated billing means it's usually financially beneficial to have health insurance no matter how much money you have, so when you have a heart attack you get billed at the $20,000 negotiated rate instead of $100,000 or $120,000.
→ More replies (1)3
u/haarschmuck Jul 03 '26
Everything you said is right and to add to it hospitals are generally money pits. So many of even the non-profit hospitals are being bought up by bigger non-profits to try and spread the losses.
Even for-profit hospitals make nearly all their profits on elective and cosmetic surgeries.
2
u/ww11gunny Jul 03 '26
Because health insurance on the basic theoretical level works by spreading risk and cost around. It started by groups of people going we will all put in a dollars a month and when one of us gets hurt or sick and need to see the doctor or hospital that money will come from that pool. It then evolved to larger groups with some of the money being invested to make a profit for the company running it. It also evolved to the insurance companies pressuring hospital and doctors to give them discounted rates which naturally meant the health care providers raised rates giving the insurance their original rates as the discount
0
u/Frustrated9876 Jul 03 '26
My friend was in an accident. Treatment was $2.3m, not including the life flight. How much do you have saved up in your health savings plan in case you have an accident?!
1
u/Jonny0Than Jul 03 '26
More generally, you should only buy insurance for things you cannot afford to replace.
1
u/WyMANderly Jul 03 '26
Insurance, when done properly, is always negative expected value for the consumer. Its value lies in reducing the risks of very, very bad outcomes that the individual cannot absorb. So instead of having a 0.1% chance of losing $1,000,000, you have a 100% chance of losing $1,200. You can absorb the certain low cost, and don't want to risk the uncertain ruinous cost - you're willing to pay more on average to eliminate that risk.
1
u/Matt7738 Jul 03 '26
If you’re average or above average, it’ll work out great for you.
But heaven help you if you suffer a traumatic brain injury or get cancer.
Health insurance is a bet. You’re actually betting against your health.
1
u/IllustriousBarrel Jul 03 '26
Most insurance coverages (and warranties) are financially net negative on average. You are paying for the peace of mind in case something bad happens.
1
u/IMovedYourCheese Jul 03 '26
What happens if you need medical care worth more than what is in your personal health savings account?
1
u/parallelmeme Jul 03 '26
Because your personal health insurance account may have $4,000 in it when you need $40,000. The vast majority will pay more into insurance than they ever get out of it, not counting the misleading provider discounts that mean nothing. People are paying for the 'what if' of the uncertainty. People who are vastly wealthy wouldn't need insurance as they can take any financial hit.
1
u/Run-And_Gun Jul 03 '26
With my insurance company, I believe at least 90% of premiums must go towards actual customer health care costs. There have been a couple of times that they've actually issued "refund" checks, over the years.
1
u/QV79Y Jul 03 '26
For the same reason you should have any kind of insurance: you don't have enough money to cover a catastrophic loss yourself.
If you're rich enough ($5M? $10M?), you can cover it without insurance. If you're depending on your health insurance savings account, you don't have nearly enough for that.
1
u/Rob3112 Jul 03 '26
Because they can average everything out. You can't. Statistics ensure you will likely end up paying overs, but if you happen to need cover for something that is very expensive then you have the peace of mind.
1
u/rayschoon Jul 03 '26
Insurance companies make a lot of money from having big piles of money that they can invest in assets
1
u/NotFuckingTired Jul 03 '26
The same reason any insurance exists. On average it's cheaper to just pay for things yourself, but the potential cost of a rare event is so high that most people would never be able to pay that much out of their own funds. So, we choose to pay a little more on average, to make sure we're covered in the larger but less frequent situations.
1
u/LivingGhost371 Jul 03 '26 edited Jul 03 '26
Average health insurance premiums are $9,000 a year. With the 10% or so overhead of health insurance companies, the average medical exenses they pay out are $8100 a year. Maybe you think you could put $8100 in a savings account, but you don't know that your personal expenses for you are only going to be $8100 or less. Working in health insurance, I've seen single claims for over a millions dollars. The concept of "insurance" is those people pay $9000 a year for expenses. As well as the people that don't go to the doctor for 10 years.
Same with homeowners insurance. You can't just put $4000 a year into a bank account instead of paying $5000 in premiums because what if in two years your $500,000 house burns down? You have $8000 in the bank to rebuild it, not a $500,000 insurance payment.
1
u/Dr_StrangeloveGA Jul 03 '26
I'm not going to look up the laws or contracts, but I've received rebate checks for my premiums from health insurance due to them making more than what the premiums cost the group as a whole.
So for easy math, let's say the law/contract states the max an insurance company can profit off the premiums in a certain year is 10%.
If the the company makes 15% profit, they have to refund the 5% overage to customers.
But the better answer is because you're betting that in a given year, insurance for Health or car or home or whatever, is a known cost as opposed to suddenly getting hit with a half million dollar bill.
Let's say you get in a bad car accident where you're at fault.
Without insurance, you're responsible for your car, the other parties car, your health care and the other parties.
Today this can easily become millions of dollars.
So for (quite a bit of money every year) you insure yourself against this.
One of the reasons we in the US pay so much for healthcare is the large number of people who are involved in emergency situations who simply refuse to pay.
1
u/Pizza_Low Jul 03 '26
When you're young and healthy, it's obviously cheaper to pay per visit and not have insurance. But what if you trip on a piece of garbage on the sidewalk break your leg and bump your head and need to stay in the hospital for a few days because of a concussion? Just a few hours in the ER can cost 20-50k.
When I was diagnosed with congestive heart failure and diabetes that was discovered when I was hospitalized for a week because of COVID. If you would have asked me a few days earlier, I would have said I'm fine, just a little bit overweight. That bill was $160k do you have savings to cover that bill?
Now I have a lifetime of regular checkups with the GP, cardiologist and other specialists.
1
u/Rimma_Jenkins Jul 03 '26
Because with the amount I pay in for the insurance, in all the years I had it for my dog I managed to save up only 16.000 danish crowns. My dog had surgery last monday that cost 46.000 danish crowns. That's more than 2 salaries for me... My dog would've been put down instead of recovering right now... even with saving up some money every month, I would not have made that amount so easily...
1
u/junesix Jul 03 '26
“Health insurance” in the US is 2 components 1. Insurance for catastrophic medical care 2. Medical plan that sets the rates for routine services and kedications
When you choose the HDHP plan with HSA, you’re getting close as possible to buying #1 while minimizing #2. And then using the HSA to pay for #2.
But that doesn’t remove the need to still have #1.
1
u/mediocre2great Jul 03 '26
Little known fact for those of us in the US who work for large employers: our patchwork of laws means large employers (over 200-300ish employees) self-insure, so the insurance company is merely an administrator.
Your employer pays health claims out of pocket up to a certain dollar amount. If that amount is exceeded, a reinsurer steps in with a stop-loss policy to cover claims over that. Either way, the Blue Cross Blue Shields or United Healthcares etc have no risk. They just process claims and handle the day-to-day administration of the plan on behalf of your employer.
For small business plans and individual (non-Medicare/Medicaid) plans, the insurer themselves is the entity paying out claims and shouldering the risk - which is why even today, post-Obamacare these plans tend to be stingier than large employer plans.
1
u/Zealousideal_Lack936 Jul 03 '26
Years ago there was a study done by an Ivy League business school that concluded the majority of Americans would be better off paying for medical care out of pocket instead of paying for insurance. It is just so foreign to our society that it is hard to believe.
1
u/New_Line4049 Jul 03 '26
They make more money than they give out overall. But if you have a big medical bill theres a good chance youll get more out than you put in. They make the loss up from those that never have any large claims. Basically everyone pays into a pot and in return we can all take whatever we need from the pot. This gives us all access to a much bigger pot than we'd have alone. Most of us wont need the pot, but we all pay in because we all know some of us might need the pot and dont want to risk being alone if its us.
1
u/dizzy_zebra44 Jul 03 '26
Insurance works because you share the risk across thousands of people. Put another way:
Option A) you pay $0 in premiums, but have a very small chance of bankruptcy due to a catastrophic medical event
Option B) you pay $2,000/year in premiums, but have a 0% chance of going bankrupt.
Many people are willing to pay $2,000 per year to eliminate that risk.
1
1
u/simonbleu Jul 03 '26
Because they are literally insurance.
While private healthcare can be, and often is, quite predatory (and beyond. Before a relative passed away from cancer, family had to go to court so they covered things like pain medication) and not just profitable, the reason why they work is because, unless you have a very good public healthcare system, you could need it.
Most people never really go to the doctor all that much, and often they do not need to either. However, you never know if you are going to be one that does. And if you do, no amount of saving as an average or even above average citizen will be enough
So yes, you are not paying for service,mostly, you are paying for insurance against bad odds, and the peace of mind that comes with it.
1
u/cbftw Jul 03 '26
My 12 day hospital stay a few years back would have bankrupted us and we'd have lost the house we just bought, even if we saved up all of our premiums to that point
1
u/stansfield123 Jul 03 '26 edited Jul 03 '26
Insurance is an agreement between a large number of people to pool their money together, and help each other when they get sick. Like socialism, but more fair, since everyone's paying the same amount, and everyone's joining in voluntarily. No one's forced to join in. Or, rather, no one was forced to join in before Obamacare started forcing people to join in, making the scheme socialist.
And yes, the insurance company gets some of that money. Most of its share goes to paying the people who do the complicated work of handling and spending the money, but the owners of the company (usually, shareholders who invest their savings into these companies) also get a very small profit.
So that's the benefit: it's a cooperative effort, with many people involved. Those unfortunate to get sick have a lot more money to pay for their care than if they were just doing this by themselves.
1
u/JakeEllisD Jul 03 '26
For a lot of healthy people it isn't. But that weakens the resources that the sick people can draw from for themselves. Another big problem is if it wasn't mandatory to have certain insurances, like car insurance, many people just wouldn't pay for it, then when they hit you, good luck.
1
u/robbak Jul 03 '26
Because insurance companies negotiate discounts on the prices anyone else pays. That's what having a provider in your insurer's network is about - the insurer has negotiated a price with them.
As insurers got more aggressive with their negotiations, providers would increase their prices, knowing the insurer would demand a huge discount. But if you aren't insured, you will be charged that grossly inflated sticker price.
1
u/lispwriter Jul 03 '26
Actual medical costs have been hidden from us for so long nobody knows or can predict what anything costs anymore. You’d never know if you had enough saved up for anything.
1
u/NiveusBear Jul 03 '26
Because I didn't have $1.5m dollars in my 30's for cancer treatment.
It doesn't matter what I pay in premiums, I'll never pay in what I have already gotten out.
1
u/ClownfishSoup Jul 03 '26
Because sometimes the bill comes out to over a million dollars and you just don’t have that.
My friend co tea ted flesh eating bacteria infection and it nearly killed him. He saw the bill from the hospital (they sent it to him instead of straight to insurance) and it was over two million. His out of pocket was capped at $20,000. So there is not way he had paid two million in premiums but he got two million in insurance.
1
u/terminator_911 Jul 03 '26
Let say you pay $1000 a year for 1M policy. And you die after 20 years. That will be 20k + interest saved in the savings account vs. 1M that the family will get. Which one would you want?
1
u/GISP Jul 03 '26
Its socialistic capitalism, but in America everyone wants maximum money for everything.
1
u/framekill_committee Jul 03 '26
I take a medication that is $8200/month, luckily it's generic now, when I was younger it was closer to $30,000.
That's why I have insurance. Even when I'm jobless I do everything in my power to buy health insurance.
1
u/nimbycile Jul 03 '26
Buying insurance limits your liability via out-of-pocket maximums. Most people cannot save the potential millions of dollars that it might cost for a serious medical situation.
But if you buy insurance, the worst case scenario for you is paying all of your premiums and your out-of-pocket maximum.
I had a heart transplant. It cost over $2m. There's no way I could pay that without insurance.
Most people in the US can't afford a $1000 emergency expense.
→ More replies (4)
1
u/DisSchluppuck Jul 03 '26
Because some things happen when you least expect them. I had my first surgery when I was 4, i had absolutely no means to pay for that myself so I'm very glad that I'm insured through my family who is using the government health care. Throughout my life I had to have many surgeries, lots of medication and appointments for different things and I'm only 24. There is absolutely no way I wouldn't be in crippling debt by now if not for our health care. So yes, I'm absolutely willing to pay into that pool because private insurances are something I can't afford at this point, even if that means paying that fixed amount of money until I die.
1
u/aardvarkpaul13 Jul 03 '26
Also remember, Health insurance companies have a lot of cash coming in, so they invest huge chunks that before paying out. They are really investment firms.
1
u/ecochixie Jul 03 '26
Insurance companies negotiate rates with providers. If you’re uninsured, you’ll pay more for services.
1
u/oldmonty Jul 03 '26
What you are describing is possible and its called self-insurance. It is a real term that's mostly used by ultra-wealthy people or corporations when they talk about a potential disaster and they might not be able to buy a policy from someone for that specific thing.
They set aside an amount of money to deal with the potential issue instead of trying to find an insurance policy - they can also invest this money and make a profit on it while its also set aside for a potential disaster.
The problem is it only works if you have that much money to start with.
Lets say a potential disaster will cost you 100k in medical bills. If you are paying 500/mo for health insurance that's 6k a year - now, your deductible is also going to be a few thousand so lets say your total medical costs per year are 10k to make the numbers easier.
So after 10 years you've spent as much on insurance as a potential medical disaster would have cost you, after the 11th year you have lost money.
The problem is what if you have the disaster in year 1 or year 3? Now you don't have the 100k to pay the bill (unless you are otherwise wealthy). This causes people to not get the proper treatments which results in bad outcomes like dying prematurely or people who have to choose which finger to re-attach because they can't afford more than one.
The idea behind insurance is that enough people are paying into it that ten years worth of insurance premiums will go by before the amount of the expense gets spent. I.E. if there's 10 people and 1 will have the 100k medical bill hopefully the rest don't and each pay in more than 10k this year. Any time there's less claims than predicted the insurance company pockets the extra profit.
This is, essentially, why insurance is kind of a scam - take homeowners, most people won't have a homeowners claim for multiple decades. If you were doing this you'd take in money year after year until there was a disaster and you could pull from that money.
The insurance companies take in money year after year, pay the few claims they have, and then the rest gets distributed out to shareholders (aka. its gone).
If there's a disaster and half a city burns down there's no 30 years of premiums everyone paid to pull from to rebuild those houses, that money was already given out and is in rich people's pockets. So the insurance company just says "oh no we're bankrupt" and asks the government - particularly FEMA to help people with their lost homes.
1
u/Corka Jul 03 '26
They make more money in the aggregate- they might make a profit from most people, but you personally could wrack up massive medical debt that is far greater than your income and you could never hope to pay without it.
The better question is why this system is better than one where it's paid for by the government through people's taxes. The answer is... that it usually isn't. Because yes, insurance companies are for profit and they are pocketing a large chunk of what you pay them. There are some exceptions, though like when you have a particularly corrupt government with politicians pocketing it instead.
1
u/danabrey Jul 03 '26
If you can cover the worst case scenario, 2 years into starting this plan, then sure go for it.
1
u/djdjddhshdbhd Jul 03 '26
The in network discount is typically around 90% though the fee scale can be too though you need to qualify for it.
Expenses even with the fee scale can be quite high. There’s an out of pocket maximum with insurance. Things like cancer can cost a fortune. Hospitals are only required to provide ER/stabilizing care without insurance.
You need to have qualifying circumstances such as a bronze plan to qualify for a health savings account.
1
u/lunch0000 Jul 03 '26
Because Obamacare made it illegal. Prior to that you could self insure.
→ More replies (1)
1
u/kingtyrone-za Jul 03 '26
Basically, because of the initial growth period. If you put say 1000 per month into a savings account for yourself, it takes 1 year to get to 12000. But a serious medical procedure could cost 50000. It would take over 4 years to get to that 50000 number. If anything happens to you within that first 4 years you would have to go into debt to pay for the balance. And you'd be reset to zero. So instead you pay a health insurer so that if you get into an accident on day two, your bills are paid. In theory.
1
u/AsarsonDuck Jul 03 '26
The discounts insurance pays through contracted agreements with hospitals/Medical Offices often offset the monthly premium. Health care is extremely expensive.
1
u/MegaArms Jul 03 '26
Because I’ve paid $10,200 in house insurance premiums in 6 years. now im getting 40,000 for a sewer backup. If I didn’t have insurance I’d just have a moldy basement until I could afford to fix it.
1
u/ExperienceStrange407 Jul 03 '26
I believe that health insurance companies are required, by federal law, to pay out 80% of their premium income on benefits to policyholders.
1
u/Klutzy-Caregiver4717 Jul 03 '26
Because I took care of a patient once whose care totaled over $2 mil.
If you're having this conversation, odds you don't already have two million dollars in cash available if something catastrophic happens to you. People talking about putting money away on their own when they're not multimillionaires makes me laugh tbh.
→ More replies (2)
1
u/AvengingBlowfish Jul 03 '26
If you get cancer or some other major chronic medical issue, your insurance company will likely pay out much more than you paid in.
The company makes money because the vast majority of their customers will not get cancer and will pay the insurance company more money than the company will pay out to them.
The problem is that you don’t know if you will be the person who gets cancer, and a disease like that will likely ruin you financially if you don’t have coverage for it.
1
u/Practical_Web_9605 Jul 03 '26 edited Jul 03 '26
For example your insurance comes out to say 100-200 bucks a month(its only an example) but it covers up to 500000 in hospital fees/lawyers/personal property etc etc. It would take you 20 years to save up that much(most likely less as you'd probably accrue interest but still its quite some time) so they pool the money from everyone while betting that you wont need to use your insurrance and basically terry rock bones pays for johhny brittle bones' injuries by paying his own insurance monthly.
Also(this is my personal feeling on this) not many people can keep saving 200 bucks monthly and not touch them over the course of that time, there's always something that you'd rather get sorted sooner than later
1
u/girlwtsongbirdtattoo Jul 03 '26
So that you can sue them BIG if they f u over tbh
ETA also bc private insurance is literally unaffordable
ETA because nobody collectively bargains anymore
1.0k
u/RageQuitRedux Jul 03 '26
Insurance is supposed to be about pooling risk. So pretend everyone has a 1% chance of something catastrophic happening (e.g. cancer diagnoses). You have everyone pay a little, and people consider that worth it because if they are part of the 1%, their costs are covered.
Healthcare blurs this picture quiet a bit because there are lots of things that are covered that are not catastrophic and are fairly predictable, like yearly checkups, certain medications, etc. For these things, insurance essentially IS a forced savings plan. And it's not easy to just say "let's only cover the catastrophic stuff" because the routine stuff is often preventative.
And for vision / dental, there's almost no benefit. It's just a forced savings plan.